Provisions related to Assessments and Appeals under the Income Tax Act
Every taxpayer has to furnish the details of his income to the Income-tax Department. These details are to be furnished by filing up his return of income. Once the return of income is filed up by the taxpayer, the next step is the processing of the return of income by the Income Tax Department. The Income Tax Department examines the return of income for its correctness. The process of examining the return of income by the Income-Tax department is called as “Assessment”. Assessment also includes re-assessment and best judgment assessment under section 144.
Under the Income-tax Law, there are four major assessments given below:
(1) Assessment under section 143(1)
This is a preliminary assessment and is referred to as summary assessment without calling the assessee (i.e., taxpayer).
Scope of assessment under section 143(1)
Assessment under section 143(1) is like preliminary checking of the return of income. At this stage no detailed scrutiny of the return of income is carried out. At this stage, the total income or loss is computed after making the following adjustments (if any), namely:-
(i) any arithmetical error in the return; or
(ii) an incorrect claim (*), if such incorrect claim is apparent from any information in the return;
(iii) disallowance of loss claimed, if return of the previous year for which set-off of loss is claimed was furnished beyond the due date specified under section 139(1); or
(iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; or
(v) disallowance of deduction claimed u/s 10AA, 80IA to 80-IE, if the return is furnished beyond the due date specified under section 139(1); or
(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return. However, no such adjustment shall be made in relation to a return furnished for the assessment year 2018-19 and thereafter.
However, no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Further, the response received from the assessee, if any, shall be considered before making any adjustment, and in case where no response is received within 30 days of the issue of such intimation, such adjustments shall be made.
For the above purpose “an incorrect claim apparent from any information in the return” means a claim on the basis of an entry in the return :-
(i) of an item which is inconsistent with another entry of the same or some other item in such return;
(ii) in respect of which the information is required to be furnished under the Act to substantiate such entry and has not been so furnished; or
(iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;
Procedure of assessment under section 143(1)
As per section 234F (as inserted by Finance Act, 2017 with effect from Assessment Year 2018-19), a fee shall be levied where the return of income is not filed within the due dates prescribed under section 139(1). The amount of fee is as follows:-
(a) Rs. 5,000, if the return is furnished on or before the 31st day of December of the assessment year;
(b) Rs. 10,000 in any other case:
Provided that if the total income of the person does not exceed Rs. 5,00,000, the amount of fee shall not exceed Rs. 1000.
Assessment under section 143(1) can be made within a period of one year from the end of the financial year in which the return of income is filed.
(2) Assessment under section 143(3)
This is a detailed assessment and is referred to as scrutiny assessment. At this stage a detailed scrutiny of the return of income will be carried out is to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income.
Scope of assessment under section 143(3)
The objective of scrutiny assessment is to confirm that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner.
To confirm the above, the Assessing Officer carries out a detailed scrutiny of the return of income and will satisfy himself regarding various claims, deductions, etc., made by the taxpayer in the return of income.
Procedure of assessment under section 143(3)
The Finance Act, 2018 has inserted a new sub-section (3A) in Section 143 that the Central Govt. may make a scheme for the purpose of making assessment so as to impart greater efficiency, transparency and accountability by:
A. Eliminating the interface between the Assessing Officer and the assessee in the course of proceeding to the extent technologically feasible;
B. Optimising utilization of the resources through economies of scale and functional specialization;
C. Introducing a team-based assessment with dynamic jurisdiction.
As part of e-governance initiative to facilitate conduct of assessment proceedings electronically, Income-tax Dept. has launched ‘E-Proceeding’ facility. Under this initiative, CBDT has made it mandatory for the tax officers to take recourse of electronic communications for all limited and complete scrutiny. The CBDT had issued the instructions and notice formats for conducting scrutiny assessments electronically. As per the instruction, except search related assessments, all scrutiny assessments shall be conducted only through the ‘E-Proceeding’ functionality available at e-filing website of Income-tax Dept.
As per Section 153, the time limit for making assessment under section 143(3) is:-
1) Within 21 months from the end of the assessment year in which the income was first assessable. [For assessment year 2017-18 or before]
2) 18 months from the end of the assessment year in which the income was first assessable. [for assessment year 2018-19]
3) 12 months from the end of the assessment year in which the income was first assessable [Assessment year 2019-20 and onwards]
Note:- If reference is made to TPO, the period available for assessment shall be extended by 12 months.
(3) Assessment under section 144
This is an assessment carried out as per the best judgment of the Assessing Officer on the basis of all relevant material he has gathered. This assessment is carried out in cases where the taxpayer fails to comply with the requirements specified in section 144.
Scope of assessment under section 144
As per section 144, the Assessing Officer is under an obligation to make an assessment to the best of his judgment in the following cases:-
Note: The Assessing Officer can issue notice under section 142(1) asking the taxpayer to file the return of income if he has not filed the return of income or to produce or cause to be produced such accounts or documents as he may require and to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the taxpayer, whether included in the accounts or not) as he may require.
Note : Section 142(2A) deals with special audit. As per section 142(2A), if the conditions justifying special audit as given in section 142(2A) are satisfied, then the Assessing Officer will direct the taxpayer to get his accounts audited from a chartered accountant nominated by the principal chief commissioner or Chief Commissioner or Principal Commissioner or Commissioner and to furnish a report of such audit in the prescribed form.
From the above criteria, it can be observed that best judgment assessment is resorted to in cases where the return of income is not filed by the taxpayer or if there is no cooperation by the taxpayer in terms of furnishing information / explanation related to his tax assessment or if books of accounts of taxpayer are not reliable or are incomplete.
Procedure of assessment under section 144
As per Section 153, the time limit for making assessment under section 144 is:-
(4) Assessment under section 147
This assessment is carried out if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year
Scope of assessment under section 147
* In the following cases, it will be considered as income having escaped assessment:
i. income chargeable to tax has been under assessed; or
ii. income has been assessed at low rate; or
iii. income has been made the subject of excessive relief; or
iv. excessive loss or depreciation allowance or any other allowance has been computed;
Procedure of assessment under section 147
Time-limit for completion of assessment under section 147
As per Section 153, the time limit for making assessment under section 147 is:-
1) Within 9 months from the end of the financial year in which the notice under section 148 was served (if notice is served before 01-04-2019).
2) 12 months from the end of the financial year in which notice under section 148 is served (if notice is served on or after 01-04-2019).
Time-limit for issuance of notice under section 148
> Notice under section 148 can be issued within a period of 4 (*) years from the end of the relevant assessment year. If the escaped income is Rs. 1,00,000 or more and certain other conditions are satisfied, then notice can be issued upto 6 years from the end of the relevant assessment year.
> In case the escaped income relates to any asset (including financial interest in any entity) located outside India, notice can be issued upto 16 years from the end of the relevant assessment year.
Notice under section 148 can be issued by AO only after getting prior approval from the prescribed authority.
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